Tuesday, November 3, 2009

The narrow worldview of energy greens

Warren Buffett is calling his acquisition of the Burlington Northern Santa Fe railroad company a $34 billion wager on the economic future of the U.S. ...

Frank O'Donnell is president of Clean Air Watch, it's a non-profit environmental group. He says Buffett's acquisition is a sign he doesn't think the government's going to do much on global warming.

FRANK O'DONNELL: Well, this is very ominous from the standpoint of climate change. Warren Buffett is no dummy, and he seems to be making a multi-billion dollar bet that coal use is not only going to continue but grow in the future.

He says Buffett's in this to make money, not to change policy. But people follow Buffett. And deals like this one could make it hard to convince Americans we need to.

That's funny, when I first heard about Buffett's acquisition from Streetsblog, I thought that it was a bet that gas prices would go up, and I was heartened by the show of confidence in the efficiency and emissions-reduction potential of rail freight. After all, Buffett himself said,

They do it in a cost-effective way and extraordinarily environmentally friendly way. BNSF last year moved on average, it moved a ton of goods 470 miles on one gallon of diesel. It releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and, you know, it diminishes highway congestion.

If enough people follow Buffett, that would mean that the railroads would have plenty of capital to rebuild their second, third and fourth tracks, providing more capacity that can be used by passenger trains and taking cars and trucks off the road. What a boon for the environment!

I know that I tend to focus on transit, but I still recognize that energy and food can make a difference in the environment. Apparently O'Donnell is so focused on energy that he can take a story that is explicitly about the potential for rail transportation to improve the environment, and spin it so that it's all about energy. Wow.

7 comments:

I'm secretly hoping that Buffett will see the long-term benefits and start investing in electrification. BNSF was certainly considering it recently, maybe the long-term thinking that Buffett is known for will make it actually happen.

It just shows that there are multiple layers to the story. I reacted as you did initially too, but if the rail routes Buffett is counting on function primarily to move coal, then it would seem a bet on the future of coal, not transit.

yes this is great for rails in the US and great for future passenger services and current/future freight! However, the reason the coal bit came up is that by tonnage their amounts last year were made up of half by coal and then the other half all sorts of other things. Marketwatch estimates that a full 10% of electricity is powered by the coal from this railroad and thats a big deal.http://www.marketwatch.com/story/buffett-the-empire-builder-2009-11-03

however as gas prices go up, freight becomes a better bet and will start hauling a lot more than coal and as this happens and clean energy comes online across the nation coal amounts will go down. Its a win-win for Buffett but to think that energy (read coal) plays no part or even a little part in this is silly because it is a huge part of what this railroad is and where their money comes from.

The multi-year bull market in rail has been driven by growing US domestic consumption of coal (prior to this year), increased exports, and increased market share of PBR (Wyoming) coal which requires greater transportation. Meanwhile domestic rail infrastructure is fixed. The switch from trucking to rail is a nice long-term trend, but was probably a secondary consideration for Buffett.

Coal and oil don't really compete. Oil predominates in petrochemicals, where there's no competition, and in transportation, where it competes with electrification. Electrified transit has so small a fraction of total electricity consumption that coal doesn't really care much about it.

Coal instead competes with hydro, nuclear, some natural gas, and increasingly solar and wind. It also competes with environmentally just coal - the mining companies lobby for more mountaintop removal, which causes deadly landslides but delivers cheaper power.